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4.22.2012

Key Observations from the 2012 Beijing Motor Show

Beijing, April 23, 2012

By Bill Russo （罗威）

Background of
Beijing Motor Show

The eleventh China International Automotive Exhibition held
in Beijing in
2010 attracted automakers from 16 countries. More than 2,100 automakers and auto parts
enterprises displayed their products and services at the China International
Exhibition Centre. In total 990 vehicles were on display, of which there were
89 world debut Cars,
65 concept cars and 95 new energy vehicles. This International Auto Show
has set a new record for both the number of show cars and attendance. We
anticipate this BJ motor show will surpass the previous one in number of
audience and show car models.

In the year 2009-2010, the China automotive market witnessed explosive
growth primed by economic subsidies & incentives, coupled with strong underlying
economic drivers. Cars were being sold like hot cakes because supply was satisfying
the stimulated demand.

However within short span of time the situation has changed
dramatically. The expiration of subsidies coupled, with high inflation and increased
interest rates have dampened auto demand to 2.45 % in 2011. The challenge is
not just limited to slowing demand. The pressure on margins has built further
due to increasing cost of marketing (advertising), higher investments necessary
to reach consumers in distant lower tier markets, rising fuel and raw material
costs.

The theme of this 2012 show is "Leading through
Innovation". Innovation has became a central
theme in the strategy for defining a compelling value proposition in a
hyper-competitive market. Carmakers will
use to auto show platform to showcase innovative products and technology in
order to win the media and audience attention on this stage.

Key highlights
for the Must See Models and the Emerging Trends Behind Them

2.1Trend: Increasing importance of Coupe and
Crossover vehicles

Driven by increased young
generation buyers (Post-80s) and their dynamic styling preference, there are a
variety of coupe and crossover concept vehicles to show and launch during this
motor show. The most expected mass brand
products are the sporty VW Polo GTI, Passat All track, and coupe, VW CC V6. For
luxury brands, Audi TT RS Plus, new MB SL and CLC, BMW 6 series Gran Coupe are
noteworthy. Emphasis is not only about upgrading engine output, new segment
offerings like SUV or Station Wagon, but also offering various
exterior/interior accessories and options to create a distinctive image. Those
models will expand their in-market sedan line up and grab more buyers from
their traditional competitors.

2.2Trend: Luxury brands downsize their product
line up to smaller vehicles

In view of growing number of entry-level
buyers and their inherently lower budgets, luxury brands are downsizing their
segment offerings to lower their brand’s entry-level price through
introducing micro and small vehicles to China. Typical examples are Asia debut
of MB A-class, Audi new A3, global debut of Audi A1 5 door. Such new
initiatives are expected to lower the luxury brand price point to 200k CNY and
below.

2.3Trend: SUV and Sports-Tourer continue to gain
the ground of both show stage and market.

Both international and local
brand have recognized the growing consumer interest in SUVs, particularly
compact sized and fuel-efficient versions. The vehicles worth watching include the
Asia debut of MB GLK refresh models, the new Lexus RX and LX, BMW M6, Infiniti
JX35, as well as Buick Encore, Ford Kuga and eCoSport. For China domestic
brands, Great Wall is going to launch their topline SUV, H7 equipped with 3.0L
Diesel engine, Chang’An and Geely will also announce their new SUV products.

Individuality is driving the
design and development of well-established luxury vehicles. Such trend is evident in BMW’s Mini brand,
which is offering three London Olympics limited versions (Baker street, Bays
Water and Cabrio Highgate in different styling and trim.

2.5Trend: New energy vehicle launch is shifting
focus from EV to Hybrid among international carmakers, while local makers are
still in concept stage with NEVs

Consumer surveys show the new
energy vehicles should not be targeted at the mass-market buyers, but rather,
higher income and open-minded premium car owners and intenders. Such a trend
drives more international carmakers to introduce their hybrid models to China
for both brand marketing and sales reasons. In contrast, local brands have made
little progress in commercializing their NEV products; therefore, most of their
show cars are still in the concept and prototype stage. Typical examples of
international brands are the Asia debut of BMW 5 series hybrid and Infiniti
Long wheel base M35 hybrid. Local brands like Dongfeng, BYD and Chery continue
to show their plug-in and pure electric vehicle concept cars.

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Bill Russo, is a Senior Advisor with
Booz and Company. He lives in Beijing and has 25 years of experience in the
automotive industry, including serving as Vice President of Chrysler's business
in North East Asia from 2004 until 2008.